If you just moved this past summer, or plan to do so in the coming year, there are a few things you should know come tax season.
Can you write off moving expenses?
The Tax Cuts and Jobs Act, a new tax reform law, has eliminated a number of tax breaks beginning in 2018 (which you'll file for in 2019). As of now, moving expense deduction and exclusion for employer-paid moving expenses are no longer available through at least 2025. However, this does not apply for active-duty military who are ordered to move.
Can you still deduct moving expenses?
Beginning January 2018, any moving expense tax deductions are suspended for the duration of the TCJA, which is in effect from 2018 through 2025. This applies to both federal and state tax deductions. It is important to note that this legislation will expire for the 2026 tax year and can be overturned at any point prior.
Before 2018, most moving expenses were tax deductible if it was a work or job related move. Qualifying for these deductions relied on being able to pass two tests, one for distance and one for time.
- The distance test required your new place of employment to be at least 50 miles farther from your home than your prior job.
- The time test required full-time work for at least 39 weeks within the 12 months after you moved. Some seasonal work was allowed, such as teaching, if the work contract covered an off-season period of fewer than six months.
Qualifying expenses lodging, gas, and mileage for yourself and household members while traveling to your new home. Also deductible was the cost of packing, crating, and shipping your belongings. This also included the cost of storing and insuring these items while in transit. However, the purchase price of your new home, the cost of selling your old home, and the cost of entering or breaking a lease were not tax deductible.
Are moving expenses itemized deductions?
When moving expense were eligible for tax deductions, they were considered as an adjustment to your income, and therefore not an itemized deduction.
Can your employer deduct moving expenses?
Prior to the TCJA, you could claim an above-the-line (non-itemized) deduction for certain expenses accrued when making a work-related move. On the other hand, an employer could reimburse an employee for moving expenses as a tax-free benefit.
Today, these deductions are no longer in effect. However, if an employer treats payment or reimbursement of an employee's moving expenses as W-2 wages, the employer can deduct the payment as a compensation expense.
Are military related moves still tax deductible?
The only tax exemption that still stands after the TCJA is if you move due to a job in the military. If you're an active member of the military, you can also qualify for the exemption, and you don't have to meet the time and distance tests. The move must be defined as a "permanent change of station," meaning one of the following:
- A move to your first active duty post
- A move from one permanent duty post to another
- A move within one year from your last post of duty to home, or to somewhere nearer in the United States
Can you deduct moving expenses if you work from home?
While there are tax benefits to working out of a
home office, if you are an employee of a company and you work from home,
you can no longer deduct any moving expenses.Are moving expense reimbursements taxable?
Though the Tax Cuts and Job Act suspended any moving related expenses from being tax deductible, employers can still continue to pay for an employee's moving expenses.
Before the law came into effect, moving expense reimbursements were non-taxable, if it was work related. Today, reimbursements given by an employer for any moving expenses would be paid under a nonaccountable plan, and therefore must be reported as wages and are subject to FICA and FUTA taxes. Any withholdings would be at the same rate as any other of the employee's wages.
Is temporary housing a deductible moving expense?
If your employer sends you off on a temporary work assignment, the expenses you incur might be tax deductible. Temporary housing includes renting a house or apartment, including utilities. Staying in a motel or hotel for your work assignment is also considered temporary housing. There are a few other stipulations for temporary housing to qualify as such.
- Are you within your "tax home"? The IRS defines a tax home as the city (including suburbs) you normally conduct business. Depending on the metropolitan area, it could straddle multiple state lines. Be sure to check if your temporary housing is outside of your tax home.
- What is your assignment length? In order to deduct the cost of your temporary housing, the assignment must not last longer than 12 months.
- Are you traveling with anyone? Anyone who accompanies you must be your employer or business associate, and must be eligible to take a business expense deduction if they pay their own expenses. If a spouse or dependent travels with you, you must prorate the rent, unless they have a reason related to your business.
- Did you receive reimbursement? If your employer or client reimbursed you in full for your temporary accommodations, it is not deductible. Furthermore, you may only deduct the portion of costs that you were not reimbursed for. If you received a per diem or allowance, your rent is only deductible if your employer included the allowance in your taxable income.